Asset Tokenization: The Future of Finance and Market Evolution

Asset tokenization is becoming an important asset class in the cryptocurrency industry. As of May 2024, the related market size has exceeded $6.6 billion, reflecting investors' growing interest in this innovative financial product. Tokenizing real-world assets (RWA) and introducing them into the blockchain can provide yield opportunities in decentralized finance (DeFi). It is predicted that the asset tokenization market size will reach $10 trillion by 2030.

The main attraction of this emerging market lies not only in providing yield opportunities for DeFi. By digitizing assets into Tokens, it achieves the fragmentation of assets—splitting national bonds, stocks, and real estate into smaller shares. This process enhances liquidity and creates investment opportunities for investors with different levels of capital.

The main advantages of asset tokenization include: increasing liquidity and accessibility through interoperable tokenized assets, allowing small investors to invest in high-yield assets with lower capital; improving transparency; and enhancing composability by linking the value of real-world assets to the DeFi ecosystem.

The market value of U.S. tokenized government bonds grew from $114 million in 2023 to $845 million. A certain asset management company is the largest issuer of this asset class, accounting for about 38% of the market.

A recent study by a consulting firm shows that 64% of high-net-worth investors and 33% of institutional investors plan to increase their investment in tokenized government bonds before the end of 2024.

Although it is still in its early stages, asset tokenization represents one of the most promising and potential applications of blockchain technology. A financial company is well-positioned in this trend with its national bond tokenization service, and investor interest continues to grow.

Technology of a Financial Company

The company is transforming finance through its decentralized protocol, utilizing blockchain to provide institutional-grade products. By tokenizing stable assets from traditional finance, the company combines reliability with the efficiency of blockchain.

The company has two main departments: asset management and technology. The asset management department creates and supervises tokenized financial products, while the technology department develops the protocols that support these products.

Currently, the company offers two different investment options:

1. USDY( dollar yield Token )

   • Tokenized notes backed by short-term U.S. Treasury bills and bank deposits
   • Provide an annualized yield of 5.30%(APY), with a total locked amount(TVL) of 315.35 million USD.
   • Safer and more transparent than traditional stablecoins
   • Managed by a trust company to ensure compliance and investor protection

2. OUSG( Short-term US Treasury )

   • Provide passive investors with low-risk tokenization of short-term U.S. Treasury bonds
   • Provide an annualized yield of 4.81% ( APY ), with a total locked amount ( TVL ) of 221.32 million USD.
   • In March 2024, the investment will be transferred from a certain ETF to another fund.
   • The new version of OUSG has recently been launched, named rOUSG, which provides returns to investors through additional tokens.

Flux Finance

Flux Finance is a decentralized lending platform created by the company's team. It is based on Compound V2 but adds new features. It supports open Tokens such as USDC and restricted Tokens such as OUSG. This means users can freely lend USDC, but using OUSG as collateral for borrowing requires meeting specific licensing requirements to ensure compliance and security.

Flux uses a p2pool( model similar to Compound, allowing users to borrow and lend through over-collateralization. Lenders can earn interest on the stablecoins they provide, while borrowers can use their collateral to borrow stablecoins, adhering to the asset's permission requirements. Flux Finance is governed by the company's DAO.

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Competitors

Given that the company has established relationships with traditional financial giants, it seems to be emerging in the traditional finance sector within the crypto RWA category, complementing other TradFi companies.

In the decentralized finance space, competition is intensifying. Various companies are focusing on different areas, such as tokenization of structured credit, synthetic asset exposure, low collateral loans for institutions, and tokenized yield trading.

The company stands out for several reasons: it integrates traditional finance with blockchain, targeting the massive U.S. Treasury market, and has extensive market coverage; its complementary approach involves collaborating with traditional financial giants, thereby avoiding direct competition; additionally, it offers innovative products such as USDY and OUSG, providing safer and more transparent alternatives than traditional stablecoins.

Token Economics

Current Price: $1.87 Market Cap Rank: #54 Fully Diluted Valuation ) FDV (: $131.5B, Rank #16 Circulating Supply: 1.44 billion ) 14.27% of Total Supply ( Total Supply: 10 billion Max Supply: 10 billion Next unlock: 1.67 million ) about $2.19 million (, in 5 days

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Token Use Cases

The company's token is the governance token for itself and its Flux Finance protocol. Holders have the right to vote on various proposals within the DAO, ensuring that all decisions are made transparently on-chain.

To initiate a proposal, an individual must hold or be delegated at least 100 million Token voting rights.

It is unclear whether other uses will be introduced for Token holders in the future.

Team, Fundraising, and Ecosystem

The company's team has a diverse composition of personnel from traditional finance and the Web3 sector. The founder and CEO, as well as the president and COO, both come from a large investment bank. Another key member hails from an asset management company. Additionally, the team includes developers from well-known Web3 projects. This combination of expertise is highly aligned with the company's unique vision and goals.

The company has completed multiple rounds of financing, including seed round, public offering round, and Series A financing, raising a total of 34 million USD.

The company has established partnerships with multiple institutions to enhance its blockchain and financial services, including a certain public chain foundation, a certain DeFi project, a certain market maker, and a certain asset management giant.

Adoption and Roadmap

The company aims to connect traditional finance and decentralized finance through public blockchain technology. Their focus is on creating secure, transparent, and compliant financial products.

Main products include OUSG, OMMF, USDY, and Flux Finance. These products have driven significant growth, with the company's TVL increasing from $40 million to $534 million.

Looking ahead, the company plans to expand the use of its tokenized cash equivalents by increasing the adoption and liquidity of USDY, OUSG, and OMMF. This will involve establishing partnerships and developing cross-chain tools to facilitate these processes.

In the next phase, they aim to tokenize publicly traded securities, addressing challenges related to liquidity and infrastructure. Ultimately, the company hopes to innovate within traditional finance by extending the advantages of blockchain to a broader range of financial services, using a combination of centralized and decentralized mechanisms.

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Bullish Fundamental Factors

• The tokenization industry is set to experience significant growth, with the company's collaboration with asset management giants strategically positioned to bring trillions of dollars into Web3.
• The company's TVL has seen significant growth since the beginning of 2024.
• Real-world assets represent a fresh and promising narrative in the crypto space, with strong early adoption potential.
• The company is committed to developing its products to meet customer needs.
• Most of the investments in OUSG were initially in a certain ETF. In March 2024, they switched to another fund, aligning with the company's focus on asset tokenization.
• The company is a leader in the crypto RWA space, becoming the preferred choice.
• The company holds about 38% of the current supply of a certain fund.

Bearish Fundamental Factors

• The use of the company's Token shows significant centralization risks.
• Although all holders can participate in governance, the largest holders have the greatest influence.
• Approximately 85% of the total token supply is controlled by the company team.
• Operating at the intersection of traditional finance and cryptocurrency, the company has entered a relatively undeveloped market, where regulation poses significant challenges.
• Bad debt is a major risk of DeFi protocols including the company's Flux. Bad debt occurs when the value of a borrower's collateral falls below their debt. If the borrower's equity turns negative, Flux will use its reserves to mitigate losses. To minimize volatility and reduce the risk of bad debt, Flux only accepts stable assets as collateral.

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